What is Overshopped
Overshopped is a term used to describe the perception that an equity or debt offering has failed to attract capital. The belief holds that due to the lack of acquiring money, the offering desperate to appeal to investors. Investors considering such a deal are likely to wonder why it has failed and will subject the investment it to greater scrutiny.
BREAKING DOWN Overshopped
Overshopped reflects the appearance of desperation among the entrepreneurs or bankers who are seeking new capital. Investors such as venture capitalists often exchange information and may have an idea of an offering’s history before contact with the venture’s management team. If they perceive that a deal has been rejected by an unusually large number of other potential investors, this perception can become a deal-killer. This belief can hurt the reputation of the offering company, as well as the bankers, accountants, and lawyers involved in the offering. The perception of overshopping can result from a poor presentation and is not necessarily a reflection of the quality or viability of the company.
Factors Indicating Overshopping
Institutional investors or financiers subject potential investments to considerable scrutiny and any weakness in an offering can lead to rejection. Investors may believe that a product has insufficient development or other hidden problems. They investigate the degree to which a market has been researched, whether existing orders justify further financing and the strength of competing firms within the marketplace.
Investors will also examine financial statements, often known as pro forma, to consider whether the financing in question is appropriate to the firm’s current situation. These financiers will look for exit opportunities which can be used to liquidate a losing position or to actualize gains. Entrepreneurs will also take a close look at the management team overseeing the deal to determine whether they have appropriate experience, have made personal commitments to the venture, and will make active partners over the life of the partnership.
Failure to adequately satisfy investors on these criteria will lead to repeated failure in securing new capital. Lack of interest gives the impression that a deal has been overshopped. This perception is most common among well-informed institutional investors.
Retail investors, in comparison, often lack the resources to scrutinize offerings as carefully. In the future, entrepreneurs seeking to avoid the perception of overshopping may attempt to circumvent the traditional means of promotion, such as the initial public offering (IPO) roadshow, to appeal directly to retail investors. Hype can be a dominant force in the build-up to a high-profile offering, as evidenced by numerous lawsuits brought by retail investors in the wake of the poor performance of Facebook stock following the company’s IPO.